The Employee Retention Credit— How To Claim It

Renner Business News; April 14, 2020—Joan M. Renner, CPA, CGMA

The IRS has provided guidance for employers who want to take advantage of the Employee Retention Credit. Small businesses and nonprofits experiencing economic hardship related to the COVID-19 crisis can claim a refundable credit for half the amount of wages paid to employees from March 13 through Dec. 31, 2020.

How do you actually get this credit? For qualified wages paid to employees during the first quarter, from March 13 through March 31, 2020, compute your credit of 50% of qualified wages and claim it on your second quarter payroll tax return, Form 941. The IRS says don’t claim the credit on your first quarter Form 941.

Of course, you’ll also claim your credit for 50% of second quarter qualified wages, paid from April 1 through June 30, 2020, on your second quarter Form 941. Get any excess credit refunded using Form 7200.

If you take the credit, you don’t have to pay in the payroll tax deposits and wait for a refund. Employers can reduce payroll tax deposits by the amount of the credit earned.

Employers of up to 100 employees get the credit on all wages and health benefits paid up to $10,000 per employee. Employers with more than 100 employees only get the credit on wages paid to employees who aren’t working because of COVID-19 cutbacks.

This credit does not apply to wages paid under the emergency sick leave and family leave provisions of the Families First Coronavirus Response Act. Employers are already receiving a credit for those wages.

Employers already receiving support through the Paycheck Protection Program are not eligible.

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